Pound Sterling - UK Markets

The Pound has hit a 12 year low in a trade weighted index against a basket of major currencies this week coming in at 87.9, its lowest level since October 1996. This is also the 10th consecutive month Sterling has posted a decline as the UK economy teeters on the brink of recession. The Pound also struck a 2 1/2 year low against the dollar yesterday, falling 0.3 percent to $1.7553.

Other major news yesterday was the Bank of England MPC's decision to keep interest rate cuts on hold, retaining the main base rate of 5%. Minutes released in 2 weeks time will provide clues as to how urgently the MPC is considering cuts, with the decision at present indicating lowering inflation is a more pressing concern than stimulating growth for policy makers at the Bank.

Negative PMI data across the board as we move into the 3rd quarter will eventually force the hand of the MPC. Concern for the city retail sector is also mounting as the falling pound makes imports increasingly expensive and consumer confidence hits an all time low. The only relief at present is the drop in oil prices over the last 6 weeks, which will potentially douse the fires of inflation. The Bank of Ireland is predicting rate cuts will be delayed until the first quarter of 2009.

US Dollar - US Markets

It was a quiet day for US markets yesterday with all the activity happening on this side of the Atlantic. Job cuts in US labour markets are expected to show for August as weak economic activity manifests itself in third quarter data. The US dollar has retained its value against the Pound and the Euro.

Euro - European Markets

The ECB yesterday adopted a similar stance to the UK MPC on interest rates, voting to keep base rates unchanged at 4.25%. ECB president Jean-Claude Trichet's admission that the Eurozone is experiencing an “episode of weak activity” led to the Euro suffering in the markets, dropping to its lowest level against the Dollar this year. Declining 1.3% against the Dollar, to $1.4319 from $1.4498 yesterday, the Euro also fell for the first time in 8 days against the Pound and dropped against the Yen.

Further negative press for the Euro was generated by Luxembourg Finance Minister Jean-Claude Juncker who claimed, the currency is “effectively overvalued” at present. With the ECB revising growth predictions for 2008 and 2009, proceed with caution seems to be the message here at the moment.

Yen Cashes In

The Japanese Yen continues to benefit from the credit crisis as recession threats trigger the selling of high yielding assets. It was up against the Euro yesterday.
Meanwhile the Australian Dollar continued to slide, reaching 0.8688 against the Canadian Dollar. The Australian Dollar has now also lost 17 per cent against the US dollar in less than two months after reaching a 25-year, high of US$0.9849 on July 16.